Premium Glass Ltd (PGL) has entered into an agreement with Banks Fine Glass Ltd (BFGL) to share technologies and competencies with one another with regard to the manufacture of fine glassware. Along with this agreement is an accord that gives PGL the right to nominate a candidate to sit as director on BFGL’s board. To solidify this accord, this provision was included in BFGL‘s articles of association. PGL used this right to nominate Sheila as a director. During her term as director, Sheila managed to lock horns with other members of the board, earning the ire of most of them.
This has resulted in her removal as a director of BFGL. Due to the tension that erupted as a result of Sheila’s appointment, BFGL has refused to consider any nominations for director by PGL. BFGL’s blatant refusal to consider PGL’s nomination of Shahmeen for director because of the incident with Sheila is in danger of staining the agreement with PGL with breach of duty. (Ferran, 1999) BFGL’s deliberate refusal to consider PGL’s nominations are obviously done out of vengeance for the incident with the previous appointee, which was PGL’s candidate.
In boycotting PGL’s nomination, the people behind the management of BFGL manifest that they have grown to distrust PGL’s judgment. In doing so, the other members of BFGL’s board of directors are in breach of their duty by apparently acting on the interests of their group, regardless of the interests of the company. Also the members of the board of BFGL are proposing the removal of the provision granting PGL’s right to nominate a director from the articles of association. PGL holds 10% of shares in caribbean court of justice.
As a shareholder, PGL has the right to protect its interest in the company. As a shareholder, PGL is entitled to voting rights attached to its shares. That the board members are asking for the removal of PGL’s voting rights in spite of the number of shares PGL has is a deliberate act of prejudice. Such in the boycott of PGL’s nominations, the board’s proposal to strip PGL of the right to nominate a candidate for directly is another deliberate act resulting in a breach of duty.
With the decisions that the members of the board are making, it is clear that they are operating on the basis of biased opinions. Given the situation, PGL can try to exert control by two means. The first is in exercising the voting rights associated with the shares of stock PGL owns. However, since BFGL is now trying to overpower PGL by manipulating the board’s decisions to go against PGL’s nominations and trying to strip him of his voting privilege, PGL can go by way of “exiting” via the market.
By selling majority of PGL’s shares, PGL publicly manifests discontent over the activities of BFGL’s board. (Ferran, 1999). To do so is not merely a public display of disgust toward’s the malpractice of the company. A rampant selling of shares of stock will send the price of the company’s stocks to crash. This will cause the company to be the “prey” of a takeover bid, render the board powerless and at the mercy of bidders. In doing so, PGL will be able to “get back” at BFGL, so to speak, using legal remedies. (Ferran, 1999)
